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2 China
takes aim at rotten regions By
Peter Lee
It is safe to say that China has
a local governance problem. How the central
government deals with this problem - or fails to
deal with it - may be decisive in determining how
ugly political life can get in the People's
Republic of China (PRC) over the next few years.
The latest local disturbance, in the
mountain municipality of Shifang in southwestern
Sichuan province, has apparently given the
government and party considerable food for
thought.
On July 2, the call went out over
social media for the city's inhabitants to "take a
stroll", ie engage in an unapproved and
unorganized protest march to oppose a mammoth molybdenum
and copper project that
had just begun construction in the economic
development zone.
Perhaps 10,000 people
showed up to chant slogans and sign anti-project
petitions.
Depending on who is telling the
story, either a few bad eggs egged on the crowd to
invade government and party offices, or the cops
rioted when confronted with a low level of
defiance.
What is clear is that police and
armed police reinforcements were rushed in from
adjoining municipalities and a convoy of 10
vanloads of riot police rolled in from Chengdu,
provincial capital of Sichuan. Tear gas and flash
grenades were fired, baton charges were made, and
a lot of people got hurt.
The government
said 13 people were taken by ambulance to
hospitals for treatment; the other side said
hundreds were hurt and perhaps three people died.
Judging from pictures taken at the scene and in
hospitals of victims who were either truncheoned
or struck by canister munitions, police violence
was disproportionate, reckless and indiscriminate,
and reached a level of intensity that would have
been sufficient to cause fatalities.
The
interesting element of the bloody melee was the
level of discussion concerning the "Shifang
Affair" that was permitted in national
conventional and social media.
A
journalist commented on Weibo:
Three strange things about the
Shifang affair: 1. There was almost no removal
of posts on Weibo; 2. Xinhuanet and People's
Daily net reported strongly, pointing the finger
at the special police for forcibly dispersing
the people, in a change from the previous
tradition of covering such matters up; 3. Police
violence has become the widespread target of
public opinion. One gets the vague feeling that
behind all this is a giant chess game going
on.
A widely reposted photograph on
Weibo depicted incensed citizens trampling on the
signage of the Shifang municipal party committee.
Additional photo albums provide graphic
illustrations of the injuries suffered by Shifang
citizens.
In addition, postings on Weibo
gave vent to the kinds of sentiments that the
Chinese censorship apparatus is theoretically in
the business of suppressing, and also passed on
information on new demonstrations:
Although the molybdenum/copper
project will not be constructed, nevertheless
tonight many people still gathered in front of
the municipal party committee building to demand
the release of detainees. The revolution is not
yet successful, comrades still have to exert
efforts!
And, as the above post
reveals, local government capitulation on the
issue of the project was nearly instantaneous and
complete.
First, the local government
announced the project would only proceed on a
provisional basis, subject to careful monitoring
and review. Then, the head of the municipal party
committee simply announced that "the project
construction would not continue," and apologized
for shortcomings in propaganda work that caused
the project not to meet with the approval of many
local citizens. [1]
The molybdenum/copper
project is no small potato. A key project of
Sichuan's Five-Year Plan, its total planned
investment is over US$1 billion. One must assume
that canceling such a project is above the pay
grade of a municipal party chief, and the party
center told him to pull the plug - with astounding
speed.
There is a lot of chessboard -
Sichuan business interests suddenly unpopular in
Beijing? Falling copper prices? That cannot be
seen, at least for now. But certainly, the center
is showing little if any appetite for cracking
down on the protesters - whose actions were given
the favorable classification of a "mass incident"
- at least for now and is loath to provide even a
scintilla of support to the local government.
Media reportage and commentary is
shoehorning the protest and the rapid, favorable
response into the category of NIMBY ("Not In My
Back Yard") environmentalism, drawing parallels
with mass protests and Dalian Municipality's rapid
capitulation on the closing of a paraxylene plant
last year. Indeed, the Shifang protests took fears
of environmental degradation as their theme,
specifically fear of heavy metal contamination
from the smelting operation.
However, the
situation in Shifang - a mass protest with
students at its core in a remote town against a
plant that 1) hadn't been built and 2) claimed to
include an investment of 1 billion yuan (US$157
million) in sophisticated environmental protection
gear - seems different from Dalian - an episode of
mass panic that morphed into a campaign against an
existing, aging menace behind a crumbling seawall
that threatened tens of thousands of residents of
a major city with exposure to carcinogens.
It might simply be that the people of
Shifang, even before the carnival of brutality on
July 1, don't particularly like or trust their
government. And that's a problem because, if local
government had the opportunity to put its best
foot forward, it was in Shifang.
The
municipality was devastated in the Great Wenchuan
Earthquake of 2008, and it reportedly suffered
thousands of fatalities and hundreds of millions
of yuan in losses. By its own estimation, the
Chinese government poured one trillion yuan into
the wider region including Shifang, and Premier
Wen Jiabao visited the area nine times to
demonstrate the center's solicitude for the
victims.
The city of Shifang is sometimes
referred to as "New Shifang" in recognition of the
massive rebuilding that took place. One might
think that this reconstruction effort, paired with
the construction of an immense tax and
employment-generating industrial enterprise, would
endow the local government with a measure of
prestige, revenue and political security unique in
China's countryside.
Therefore, the center
is likely to regard Shifang's descent into rage
and bloodshed as a rebuke to its immense efforts -
a rebuke that it will quickly attribute to the
failings of the local government.
For the
Wenchuan disaster zone, the failings of various
local governments are already a matter of national
and international record.
After a brief
honeymoon period celebrating the massive Chinese
response, attention turned to the disproportionate
number of child victims, due to shoddy and corrupt
construction of schoolhouses. Noted chronicler of
Sichuan's lower classes (and now self-exiled
author) Liao Yiwu documented the heavy-handed
efforts of local governments evading culpability
for the schoolhouses, bullying parents who were
looking for compensation, and sucking up
reconstruction funds for their own benefit.
Therefore, it is an interesting and
important item of inquiry for the central
government to ascertain how much of the Shifang
Incident can be attributed to
environmentalism-tinged outrage and the
protesters' desire to preserve "New Shifang" (a
pastoral paradise of crystalline mineral water and
fine cigar production, according to its citizens),
and how much of it simply reflected rage at the
local government.
The incident will no
doubt add to an ongoing debate within the Chinese
government as to how to define and manage the
growing fiscal and political burden imposed on the
center by troublesome local governments.
With the tax reforms of 2003, local
governments were to a significant extent cut loose
to find their own way. The yawning gap between tax
revenues and the sum of the local governments'
obligations and ambitions was filled with special
impositions, land grabs, and real estate deals.
The center's contribution, when it came, was not
necessarily a healthy one.
In response to
the world financial crisis, the bank lending
spigot was turned open in 2008, allowing local
governments to borrow on behalf of hundreds of
billions of dollars' worth of casually approved
projects of dubious worth. At the same time, as
public dissatisfaction with the government
festered, the center provided provinces and
municipalities with "wei an" or "stability
maintenance" funds that, particularly for poorer
districts, became a vital source of income.
Now, thanks in large part to the tottering
eurozone, the world economy is faltering again.
The Chinese government is not going to go down the
mega-stimulus road again. The tsunami of money
that flooded the country in 2008 has yet to
recede, or be absorbed into worthwhile,
revenue-generating projects. The economy has to be
allowed to slow down, while managing the attendant
economic, social, and political pain.
Local governments are at the forefront of
this issue because they serve as the primary
interface between the regime and the disgruntled
citizenry. Also, the immense bank debt incurred by
the local governments (and the prospect of looming
default as the loans begin to come due) cast a
shadow over central government's attempts to use
its financial and fiscal tools to manage the
economy through a particularly tricky and
dangerous patch in a more targeted, scientific,
and efficient manner.
The center got an
idea of the magnitude of the problem by sending
out an audit team in mid-2010. It came back with
some very big numbers. It turned out that
so-called local government financing vehicles or
LGFVs had accumulated debts of 10.7 trillion yuan
by the end of 2010. [2]
Seventy-nine
percent of this debt was in the hands of banks
(less than 10% had been raised as bonds) and was
therefore looming on bank balance sheets, 40% of
the loans come due in 2015.
Moody's
provided additional texture to the picture by
declaring that another $540 billion should be
added to the figure to compensate for lies
probably made to auditors, and darkly warned that
"Unless China comes up with a 'clear master plan'
to clear up the huge stockpile of local debts, the
credit outlook for Chinese banks could turn
negative." [3]
An investigative report by
Chen Zhilong of Xinhua Daily (a major provincial
paper in Jiangsu province, not the national news
agency) revealed that these loans were
overwhelmingly collateralized by land held by
government land offices at the provincial, county,
and municipal level, and a lot of the collateral
was simply terrible.
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